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What a short bridge actually costs once points, flat fees and the minimum-interest clause are divided by the handful of months you hold it.
Bridge loans are simpler than fix-and-flip money - fully funded at closing, no rehab holdback, no draws. What makes them expensive is how short they are.
Points and flat fees do not shrink with the hold period. Pay two points and $2,750 of fees on a loan you keep for three months, and those costs alone are worth roughly eleven points of annualised rate. The quote will still say 11%.
Why the minimum-interest clause matters more here than anywhere
On a twelve-month flip, a three-month minimum-interest provision is usually harmless - you were going to be out past it anyway. On a bridge, it is frequently the whole loan.
What to ask before you sign a bridge
- Is there minimum or guaranteed interest, and for how many months?
- Is there an exit fee? On a short loan it is a large share of total cost.
- What does an extension cost, and is granting one your right or the lender's discretion?
- If it is cross-collateralised, what releases the second lien - see cross-collateralisation.
Questions people actually ask
What is the downside of a bridge loan?
That it is priced as though the repayment event is certain, and then the repayment event turns out not to be. Everything else follows from that.
Concretely: a short term with a hard maturity date, 8.0% to 15.0% pricing plus points on money you hold for only a few months, minimum-interest clauses that hurt most on exactly this kind of fast loan, a personal guarantee behind it, and - if it is a buy-before-you-sell bridge - two properties at risk instead of one. See bridge loans and minimum interest.
Are bridge loans a good idea for real estate?
They are a good idea when you are bridging to something already scheduled - a sale under contract, a refinance in underwriting, a lease signed. They are a bad idea when the thing on the other side is hoped for.
The test is one sentence long: write down the event that repays this loan, and the date it happens. If you cannot, it is not a bridge - it is short-term debt against optimism, at the most expensive rate available.
Is it difficult to qualify for a bridge loan?
Comparatively, no - that is the point of the product. Qualification turns on the collateral and the exit rather than on your income, and funding takes about a week. The genuine constraint is cash: expect 60% to 75% of as-is value, so the rest comes from you.
What does Dave Ramsey say about bridge loans?
He is against them, along with most debt, and the underlying caution is fair: a bridge loan against an unsold house is a bet that two transactions land in the right order, and if they do not you are carrying two properties at once.
The part worth separating out is that his advice is aimed at households buying a home to live in, where the downside is your residence. This site is about business-purpose loans on investment property, where the calculation is different - it is a financing decision inside a business, not a lifestyle one. The caution still applies to the certainty of the exit, which is the thing that actually goes wrong. It does not follow that leverage is always the wrong answer for an investor.
What are the alternatives to a bridge loan?
In rough order of cost, cheapest first: a home equity line on a property you already own (cheap, slower, and it is your own collateral); a cash-out refinance of an existing asset; seller financing or a delayed closing, which costs nothing and is asked for far too rarely; a contingent offer, if the market will tolerate one; a partner funding the gap for a share; or simply selling first and renting for a few months.
Bridge debt wins on speed and on certainty of funds, not on price. If your timeline can absorb three extra weeks, one of the above is almost always cheaper - see hard money versus everything else.